Review of Fiscal Sociology and the Theory of Public Finance. By
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THE QUARTERLY JOURNAL OF AUSTRIAN ECONOMICS 12, NO. 1 (2009): 88–94 FISCAL SOCIOLOGY AND THE THEORY OF PUBLIC FINANCE. BY RICHARD E. WAGNER. CHELTENHAM, U.K.: EDWARD ELGAR, 2007. conomic theories of the state have traditionally been divided into two camps under the headings of public finance and public choice (cf. EBuchanan and Musgrave 1999). The public finance approach identi- fies the state with an omniscient social planner. Armed with the tools of microeconomic analysis and a knowledge of market conditions both actual and possible, the state intervenes fiscally (with taxation and subsidies) or with regulation to correct market failures or maximize tax revenues. The public choice approach, by contrast, identifies the state as an organization comprised of self-interested actors whose interventions are predicated on their own cost-benefit calculations. This latter perspective owes much to Austrian economics. Gordon Tullock, one of its pioneers, was inspired to ana- lyze bureaucracy with the tools of economics after reading Mises’s Human Action. The deployment of means in the pursuit of ends constitutes all human activity, in government as well as markets. Richard Wagner’s Fiscal Sociology and the Theory of Public Finance pushes the Austrian approach to social science further than previous economic analyses of the state. Subtitled “An Exploratory Essay,” it reads more like a manifesto for a budding research program than an exposition of particular propositions. Over the course of eight chapters, Wagner outlines the con- tours of a theory of state activity. The orientation is self-consciously Men- gerian (p. 41), but also draws on the broadly continental approach to public finance from the late nineteenth and early twentieth centuries (e.g., Wick- sell, De Viti de Marco), as contrasted with the dominant British approach (e.g., Edgeworth, Pigou) that dominates mainstream public finance. And of course, though explicitly titled as a work in public finance, Wagner remains closer to the Virginia school of public choice that he helped develop and propagate. 88 BOOK REVIEWS 89 The most striking and innovative aspect of the book—and the one most challenging to Austrians and libertarians alike—is the conceptualization of the state as a social space rather than an organization. That is, the state, like the market, is an arena in which individuals pursue their own purposes. Rejecting the dominant strand in both public finance and public choice that treats the state as intervening in a preexisting market order, Wagner paints the picture of a “two-forum societal architecture” (chap. 2) in which state and market interpenetrate one another. Market and fiscal phenomena alike find their origins in human nature. I wish to explore critically how these claims add up and how well they square with Austrian economics and liber- tarianism. Wagner distinguishes between private property and public property, or commons. He takes a narrow view of private property, one that concerns only the sphere in which the individual is truly autonomous. As such, it cannot be all-encompassing in any society. My right to trade or not trade may be pri- vate, but your right to offer me a trade relies on some common medium by which you can contact me. Furthermore, effective (rather than merely nor- mative) property claims depend on the forbearance of others; as such, “pri- vate property can only operate within a medium of common property” (p. 43). Recognizing the impossibility of a purely private social order does not entail any logical or temporal priority of public property. Rather, the two are coeval, corresponding to two fundamental human desires for autonomy and solidarity (pp. 41–46). Autonomy denotes the pursuit of ends by economiz- ing on the use of physical things. Solidarity denotes the pursuit of ends in which other people and relationships with them are the objects of econo- mizing activity. In dubbing this impulse “solidarity,” Wagner bestows no romantic veneer: it includes desires to compete with others, meddle in their affairs, and even coerce them for one’s own ends. In other words, in contrast to standard economic models, individuals take an active interest in one another. Actions motivated by solidarity always involve some sort of com- mons. Interest in the actions and beliefs of others necessarily forecloses complete autonomy in the disposal of means over ends. This dichotomy between public and private radically diverges from the traditional theory of public goods, and in a thoroughly Austrian direction. Economists usually predicate public goods arguments on technological con- siderations such as non-rivalry and non-excludability. From their lofty, hypo- thetical perch, they surmise that in the absence of such difficulties individ- uals would be willing to pay for such services, thus justifying interventions to correct market failures. Wagner, by contrast, defines the commons in a purely subjectivist manner. Public economics begins with the demonstrated preferences of individuals concerning their relationships with others. Public 90 THE QUARTERLY JOURNAL OF AUSTRIAN ECONOMICS 12, NO. 1 (2009) character is a “fact of the social sciences” (Hayek 1943) determined not by some objective characteristic of a good or service but in the way individuals treat it. A smoke stack polluting my neighbor’s land is not a matter of pub- lic economics until my neighbor raises a complaint. Conversely, a technolog- ically excludable and rival good is the subject of public economics whenever its provision is funded by coercive means (p. 25). From this basic distinction Wagner goes on to depict what he calls a “two-forum societal architecture” (chap. 3), in which the market and the state are two interconnected arenas of activity. Market decisions, though they reach across the commons, are governed by freedom of contract and free entry. Their outcomes thus correspond to autonomous action. State decisions instead occur within the commons. “State” is then treated as a universal feature of social order, an arena in which particular governments of various forms can come and go (pp. 49–50). Just as in the market, individu- als pursue their own, frequently contradictory ends in the commons. A het- erogeneous array of organizational enterprises, from legislatures to bureau- cracies, thus inhabits this space. On the surface, this vision of society appears fundamentally at odds with basic features of libertarianism, especially the anarchist variety. If the state is an arena which different organizations inhabit, does it even make sense to complain about a monopoly of coercion? Even more troubling is the identifi- cation of the state as a universal feature of society rooted in human nature. Wagner’s definitions seem to trap us between one of two poles: either the world is inherently and universally anarchic, or anarchy is simply a theoreti- cal impossibility. Either way, he seems to be categorically denying the tradi- tional Weberian definition of the state. Such concerns are not baseless, and I am not arguing that economists should jettison their traditional approach to the state. A serious quibble with Wagner’s definitions is the violence they do to accepted usage of terms such as “state.” It is unclear why terms such as “public” or “commons” would not have sufficed to describe the arena in which solidarity plays out. Enterprises that would bear the mantle of the “state” certainly occupy the commons, but not exclusively. Wagner notes that activity within markets includes pub- lic elements (p. 17). He also recognizes that governmental organizations tend toward hierarchical relationships (pp. 158–59). From both fronts, then, an identification of the state with the commons is problematic. A better rendering of the traditional sense of “state” in his system might be a network of hierarchically organized enterprises that dominates the legal stewardship of the commons. By dominion, I mean neither that the state controls all of the commons, nor that such control is absolute. Rather, it entails that freedom of entry into legal adjudication within the commons is effectively curtailed. Working with this definition, Wagner’s framework of a two-forum BOOK REVIEWS 91 societal architecture thus clarifies the significance of private adjudication. In a society with a state, private adjudication may exist for contractual rela- tions without nullifying our common sense notion that the state has a monopoly of coercion. The key is the exercise of legal dominion within the commons, where contractual relations are absent but individuals still inter- act. For example, criminal activity falls strictly within the commons: the criminal takes an interest in his victim that does not respect the victim’s sphere of autonomy. The state does claim a monopoly over adjudicating such disputes, while private courts that deal with pre-existing contractual relations—which take the individual’s sphere of autonomy for granted—are allowed to persist. It should be emphasized that these disputes are more terminological than substantive. Wagner’s simplified market-state dichotomy does the job it was intended for, which is to analyze fiscal phenomena (p. 46). In terms of monetized activities, a dichotomy between contractual-private and coer- cive-public performs admirably. He eviscerates any notion that state budg- ets are centrally planned in response to market outcomes. Rather than modeling individuals as simply self-interested, rational choosers, Wagner again takes a thoroughly Austrian tack and includes entre- preneurship in his account of agency. Entrepreneurship is the part of action that deals with man’s attempts to forecast the future and project plans into it that advance his purposes. It is not an institutional reality but a universal feature of action, and as such applies in both the market and the public square. With this full-blooded praxeology in hand, Wagner depicts social order as an ecology of interconnected plans that originate from the market square and the public square alike (chaps. 4–5).